Saturday, 16 November 2013

CAPITAL GAINS

Capital Gains :
Capital gains arise when an individual sells at a profit  certain assets like property or shares or mutual funds or bonds etc  The treatment of such income is not the same as income from other sources.    There are two types of capital gains, viz Short Term Capital Gains or Long Term Capital Gains.
(a) Short Term Capital Gains :  Capital gain is considered as Short Term Capital Gain, if immovable property is sold / transferred within three years of acquiring the same.   Similarly, if shares or other financial securities such as mutual funds are sold within one year of purchase, the profit earned is treated as Short Term Capital Gain.
Short term capital gain is included in the gross taxable income and normal tax rates are applicable.  However, w.e.f. 1st October, 2004, the short term capital gains from sale of equity shares or units of equity oriented mutual fund schemes are taxed only at a flat rate of 10%, irrespective of the tax slab on other sources of income, provided securities transaction tax is paid on such sale.
(b) Long Term Capital Gains : Capital gain is considered as the Long Term, if the immovable property is sold after three years from purchse, or financial securties such as shares, deep discount bonds, units of open ended or close ended schemes of mutaula funds are disposed (i.e. sold / redeemed / transferred) after holding the same for more than twelve months, then the gain is considered to be long term capital gain.
Long term capital gains on transfer of listed shares / units of equity oriented mutual funds schemes has been exempted from tax w.e.f. 1st October, 2004, provided securities transaction tax has been paid on such sale.  For assets other than the listed shares / units of mutual funds schemes, tax is payable in respect of long term capital gains at a flat rate of 20% and the amount of gain has to be adjusted for inflation through indexation benefit.
Long term capital gains tax in respect of bonds and debt securities or debt oriented mutual fund schemes listed on stock exchanges is payable at a flat rate of 10% of the capital gains amount. In case an individual wishes to avail the benefits of indexation, then tax has to be paid at normal long term capital gains tax rate of 20%.

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